UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q



[x]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934


     For the quarterly period ended       June 30, 1998
                                    --------------------------------------------


                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from ______________ to_____________
     Commission file number  0-13356
                            ---------



                        MCNEIL REAL ESTATE FUND XXI, L.P.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)



         California                                  33-0030615
--------------------------------------------------------------------------------
(State or other jurisdiction of                     (I.R.S. Employer
incorporation or organization)                       Identification No.)



             13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240
--------------------------------------------------------------------------------
               (Address of principal executive offices) (Zip code)



Registrant's telephone number, including area code       (972) 448-5800
                                                   -----------------------------


Indicate  by check  mark  whether  the  registrant,  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during the  preceding  12 months and (2) has been  subject to such  filing
requirements for the past 90 days. Yes X No
                                      ---  ---


<PAGE>
                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
------- --------------------

                        MCNEIL REAL ESTATE FUND XXI, L.P.

                                 BALANCE SHEETS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                            June 30,           December 31,
                                                                              1998                 1997
                                                                          ------------         ------------
ASSETS
------

Real estate investments:
<S>                                                                       <C>                  <C>         
   Land ..........................................................        $  1,842,544         $  3,192,923
   Buildings and improvements ....................................          22,155,980           30,048,514
                                                                          ------------         ------------
                                                                            23,998,524           33,241,437
   Less:  Accumulated depreciation and amortization ..............         (11,993,081)         (16,177,771)
                                                                          ------------         ------------
                                                                            12,005,443           17,063,666

Asset held for sale ..............................................                   -            2,795,988

Cash and cash equivalents ........................................           1,331,693            1,817,585
Cash segregated for security deposits ............................             209,265              176,258
Accounts receivable ..............................................              22,167              229,435
Escrow deposits ..................................................             403,121              558,752
Deferred borrowing costs, net of accumulated amortiz-
   ation of $223,853 and $218,067 at June 30, 1998
   and December 31, 1997, respectively ...........................             337,075              368,334
Prepaid expenses and other assets ................................              28,222               53,944
                                                                          ------------         ------------
                                                                          $ 14,336,986         $ 23,063,962
                                                                          ============         ============

LIABILITIES AND PARTNERS' DEFICIT
---------------------------------

Mortgage notes payable, net ......................................        $ 12,468,828         $ 18,534,503
Mortgage notes payable - affiliate ...............................                   -            3,730,076
Accounts payable and accrued expenses ............................             118,132              398,815
Accrued property taxes ...........................................             307,008              447,269
Payable to affiliates ............................................           5,189,575            4,862,973
Advances from affiliates .........................................                   -              794,981
Security deposits and deferred rental revenue ....................             176,686              194,927
                                                                          ------------         ------------
                                                                            18,260,229           28,963,544
                                                                          ------------         ------------
Partners' deficit:
   Limited  partners - 50,000 Units authorized; 46,948
     and  47,086  Units outstanding  at June 30, 1998
     and December 31, 1997,  respectively  (24,863 Current
     Income Units and 22,085  Growth/Shelter  Units out-
     standing at June 30, 1998 and 24,906 Current Income
     Units and 22,180 Growth/Shelter Units outstanding
     at December 31,1997) ........................................          (3,566,398)          (5,522,974)
   General Partner ...............................................            (356,845)            (376,608)
                                                                          ------------         ------------
                                                                            (3,923,243)          (5,899,582)
                                                                          ------------         ------------
                                                                          $ 14,336,986         $ 23,063,962
                                                                          ============         ============
</TABLE>

The  financial  information  included  herein has been  prepared  by  management
without audit by independent public accountants.

                 See accompanying notes to financial statements.
<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.

                            STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                        Three Months Ended                     Six Months Ended
                                                             June 30,                              June 30,
                                                 ------------------------------         ------------------------------
                                                     1998               1997               1998                1997
                                                 -----------        -----------         -----------        -----------
Revenue:
<S>                                              <C>                <C>                 <C>                <C>        
   Rental revenue .......................        $ 1,448,230        $ 1,614,511         $ 3,102,311        $ 3,221,812
   Interest .............................             16,111             19,740              32,912             38,241
   Gain on involuntary
     conversion .........................                  -             26,809                   -             26,809
   Gain on sale of real estate ..........            863,350                  -             863,350                  -
                                                 -----------        -----------         -----------        -----------
     Total revenue ......................          2,327,691          1,661,060           3,998,573          3,286,862
                                                 -----------        -----------         -----------        -----------

Expenses:
   Interest .............................            390,131            505,794             810,956          1,019,645
   Interest - affiliates ................             11,591             30,411             137,371             59,958
   Depreciation and amortization.........            351,818            387,101             739,076            753,324
   Property taxes .......................            114,713            135,339             252,298            270,678
   Personnel costs ......................            182,712            172,259             385,646            381,452
   Utilities ............................            105,957             96,252             222,926            211,564
   Repairs and maintenance ..............            199,206            211,357             363,112            390,122
   Property management
     fees - affiliates ..................             78,742             82,757             165,023            166,284
   Other property operating
     expenses ...........................             81,899            104,006             185,809            198,656
   General and administrative ...........            151,539             28,871             244,035             62,306
   General and administrative -
     affiliates .........................            161,543            163,349             332,134            320,948
                                                 -----------        -----------         -----------        -----------
     Total expenses .....................          1,829,851          1,917,496           3,838,386          3,834,937
                                                 -----------        -----------         -----------        -----------

Income (loss) before
   extraordinary items ..................            497,840           (256,436)            160,187           (548,075)
Extraordinary items .....................          1,816,152                  -           1,816,152                  -
                                                 -----------        -----------         -----------        -----------
Net income (loss) .......................        $ 2,313,992        $  (256,436)        $ 1,976,339        $  (548,075)
                                                 ===========        ===========         ===========        ===========

Net income (loss) allocable to:
   Current Income Unit ..................        $   208,260        $   (23,079)        $   177,871        $   (49,327)
   Growth/Shelter Unit ..................          2,082,593           (230,793)          1,778,705           (493,267)
   General Partner ......................             23,139             (2,564)             19,763             (5,481)
                                                 -----------        -----------         -----------        -----------
Net income (loss) .......................        $ 2,313,992        $  (256,436)        $ 1,976,339        $  (548,075)
                                                 ===========        ===========         ===========        ===========

Net income (loss) per limited
 partnership unit:
Current Income Unit Holders:
   Income (loss) before
     extraordinary items ................        $      1.80        $      (.93)        $       .58        $     (1.98)
   Extraordinary items ..................               6.57                  -                6.57                  -
                                                 -----------        -----------         -----------        -----------
   Net income (loss) ....................        $      8.37        $      (.93)        $      7.15        $     (1.98)
                                                 ===========        ===========         ===========        ===========

Growth/Shelter Unit Holders:
   Income (loss) before
     extraordinary items ................        $     20.29        $    (10.41)        $      6.53        $    (22.24)
   Extraordinary items ..................              74.01                  -               74.01                  -
                                                 -----------        -----------         -----------        -----------
   Net income (loss) ....................        $     94.30        $    (10.41)        $     80.54        $    (22.24)
                                                 ===========        ===========         ===========        ===========
</TABLE>

The  financial  information  included  herein has been  prepared  by  management
without audit by independent public accountants.

                 See accompanying notes to financial statements.
<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.

                         STATEMENTS OF PARTNERS' DEFICIT
                                   (Unaudited)

                 For the Six Months Ended June 30, 1998 and 1997

<TABLE>
<CAPTION>
                                                                                         Total
                                                 General             Limited            Partners'
                                                 Partner             Partners            Deficit
                                              ------------        ------------        ------------
<S>                                           <C>                 <C>                 <C>         
Balance at December 31, 1996 .........        $  (361,822)        $(4,059,156)        $(4,420,978)

Net loss
   General Partner ...................             (5,481)                  -              (5,481)
   Current Income Units ..............                  -             (49,327)            (49,327)
   Growth/Shelter Units ..............                  -            (493,267)           (493,267)
                                              -----------         -----------         -----------
Total net loss .......................             (5,481)           (542,594)           (548,075)
                                              -----------         -----------         -----------

Balance at June 30, 1997 .............        $  (367,303)        $(4,601,750)        $(4,969,053)
                                              ===========         ===========         ===========


Balance at December 31, 1997..........        $  (376,608)        $(5,522,974)        $(5,899,582)

Net income
   General Partner ...................             19,763                   -              19,763
   Current Income Units ..............                  -             177,871             177,871
   Growth/Shelter Units ..............                  -           1,778,705           1,778,705
                                              -----------         -----------         -----------
Total net income .....................             19,763           1,956,576           1,976,339
                                              -----------         -----------         -----------

Balance at June 30, 1998 .............        $  (356,845)        $(3,566,398)        $(3,923,243)
                                              ===========         ===========         ===========
</TABLE>





The  financial  information  included  herein has been  prepared  by  management
without audit by independent public accountants.

                 See accompanying notes to financial statements.
<PAGE>

                        McNEIL REAL ESTATE FUND XXI, L.P.

                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
                                                                              Six Months Ended
                                                                                  June 30,
                                                                      --------------------------------
                                                                          1998                1997
                                                                      ------------        ------------
Cash flows from operating activities:
<S>                                                                   <C>                 <C>        
   Cash received from tenants ................................        $ 3,163,151         $ 3,223,375
   Cash paid to suppliers ....................................         (1,181,977)         (1,302,991)
   Cash paid to affiliates ...................................           (170,555)           (164,657)
   Interest received .........................................             32,912              38,241
   Interest paid .............................................           (849,274)           (976,353)
   Interest paid to affiliates ...............................           (225,341)            (24,443)
   Property taxes paid .......................................           (317,182)           (293,553)
                                                                      -----------         -----------
Net cash provided by operating activities ....................            451,734             499,619
                                                                      -----------         -----------

Cash flows from investing activities:
   Additions to real estate investments ......................           (164,987)           (381,245)
   Proceeds from disposition of real estate ..................          3,698,365                   -
                                                                      -----------         -----------
Net cash provided by (used in) investing activities...........          3,533,378            (381,245)
                                                                      -----------         -----------

Cash flows from financing activities:
   Principal payments on mortgage notes
     payable .................................................           (118,700)           (131,807)
   Principal payments on mortgage notes
     payable - affiliate .....................................             (5,482)                  -
   Retirement of mortgage notes payable -
     affiliate ...............................................         (3,534,157)                  -
   Repayment of advances from affiliates .....................           (812,665)                  -
                                                                      -----------         -----------
Net cash used in financing activities ........................         (4,471,004)           (131,807)
                                                                      -----------         -----------

Net decrease in cash and cash equivalents ....................           (485,892)            (13,433)

Cash and cash equivalents at beginning of
   period ....................................................          1,817,585           1,670,843
                                                                      -----------         -----------

Cash and cash equivalents at end of period ...................        $ 1,331,693         $ 1,657,410
                                                                      ===========         ===========
</TABLE>



The  financial  information  included  herein has been  prepared  by  management
without audit by independent public accountants.

                 See accompanying notes to financial statements.
<PAGE>

                        McNEIL REAL ESTATE FUND XXI, L.P.

                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)

           Reconciliation of Net Income (Loss) to Net Cash Provided by
                              Operating Activities

<TABLE>
<CAPTION>

                                                                          Six Months Ended
                                                                              June 30,
                                                                  --------------------------------
                                                                     1998                 1997
                                                                  -----------         ------------
<S>                                                               <C>                 <C>         
Net income (loss) ........................................        $ 1,976,339         $  (548,075)
                                                                  -----------         -----------

Adjustments to  reconcile net income (loss) to net
   cash  provided by operating activities:
   Depreciation and amortization .........................            739,076             753,324
   Amortization of deferred borrowing costs ..............             31,259              34,330
   Amortization of discounts on mortgage
     notes payable .......................................             10,444               9,914
   Accrued interest on advances from affiliates ..........             17,684              29,516
   Gain on involuntary conversion ........................                  -             (26,809)
   Gain on sale of real estate ...........................           (863,350)                  -
   Extraordinary items ...................................         (1,816,152)                  -
   Changes in assets and liabilities:
     Cash segregated for security deposits ...............            (33,007)            (12,933)
     Accounts receivable .................................            116,379              14,916
     Escrow deposits .....................................            137,569            (140,183)
     Prepaid expenses and other assets ...................              4,819               2,618
     Accounts payable and accrued expenses ...............            (58,511)            (19,117)
     Accrued property taxes ..............................           (119,926)             68,728
     Payable to affiliates ...............................            326,602             322,575
     Security deposits and deferred rental
       revenue ...........................................            (17,491)             10,815
                                                                  -----------         -----------

       Total adjustments .................................         (1,524,604)          1,047,694
                                                                  -----------         -----------

Net cash provided by operating activities ................        $   451,734         $   499,619
                                                                  ===========         ===========
</TABLE>


The  financial  information  included  herein has been  prepared  by  management
without audit by independent public accountants.

                 See accompanying notes to financial statements.
<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.

                          Notes to Financial Statements
                                   (Unaudited)

                                  June 30, 1998

NOTE 1.
-------

McNeil  Real  Estate  Fund XXI,  L.P.  (the  "Partnership"),  formerly  known as
Southmark Realty Partners, Ltd., was organized on November 23, 1983 as a limited
partnership under the provisions of the California  Revised Limited  Partnership
Act to acquire and operate  commercial and residential  properties.  The general
partner of the Partnership is McNeil Partners,  L.P. (the "General Partner"),  a
Delaware limited partnership,  an affiliate of Robert A. McNeil ("McNeil").  The
principal place of business for the Partnership and the General Partner is 13760
Noel Road, Suite 600, LB70, Dallas, Texas, 75240.

In the opinion of management,  the financial  statements reflect all adjustments
necessary for a fair  presentation of the Partnership's  financial  position and
results  of  operations.  All  adjustments  were of a normal  recurring  nature.
However,  the results of  operations  for the six months ended June 30, 1998 are
not  necessarily  indicative  of the results to be expected  for the year ending
December 31, 1998.

NOTE 2.
-------

The  financial  statements  should  be read in  conjunction  with the  financial
statements  contained in the  Partnership's  Annual  Report on Form 10-K for the
year  ended  December  31,  1997,  and the  notes  thereto,  as  filed  with the
Securities and Exchange  Commission,  which is available upon request by writing
to McNeil Real Estate Fund XXI, L.P., c/o McNeil Real Estate  Management,  Inc.,
Investor Services, 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240.

NOTE 3.
-------

Certain prior period amounts have been  reclassified to conform with the current
period presentation.

NOTE 4.
-------

The  accompanying  financial  statements  have been  prepared  assuming that the
Partnership  will continue as a going concern.  The Partnership has had to defer
payment of payables to affiliates in order to meet its working capital needs.

On April 20, 1998, the Partnership sold Fort Meigs Plaza to a non-affiliate  for
$3.8 million. All cash proceeds,  after payment of selling costs and prorations,
were used to pay off the first and second  lien  mortgage  notes  secured by the
property.

The  Partnership  defaulted on the mortgage notes payable secured by Wise County
Plaza and the lender foreclosed on the property on May 29, 1998.  Foreclosure by
the lender has not had a significant  effect on the Partnership since all excess
cash flow of the  property was payable to the lender as  additional  interest on
the loans.
<PAGE>

The Partnership has no established  lines of credit from outside sources.  Other
possible actions to resolve cash deficiencies include refinancings,  deferral of
capital  expenditures on Partnership  properties  except where  improvements are
expected to increase the  competitiveness  and  marketability of the properties,
deferral of payables to or arranging financing from affiliates,  or the ultimate
sale of Partnership properties.

NOTE 5.
-------

The  Partnership  pays  property  management  fees  equal to 5% of gross  rental
receipts for its residential  properties and 6% of gross rental receipts for its
commercial  properties to McNeil Real Estate  Management,  Inc.  ("McREMI"),  an
affiliate of the General Partner, for providing property management services for
the Partnership's residential and commercial properties and leasing services for
its residential  properties.  McREMI may also choose to provide leasing services
for the Partnership's  commercial properties,  in which case McREMI will receive
property  management  fees from such  commercial  properties  equal to 3% of the
property's  gross  rental  receipts  plus  leasing   commissions  based  on  the
prevailing market rate for such services where the property is located.

The  Partnership  reimburses  McREMI  for  its  costs,  including  overhead,  of
administering the Partnership's  affairs.  Total accrued but unpaid  Partnership
general and administration fees of $1,320,235 and $1,171,406 were outstanding at
June 30, 1998 and December 31, 1997, respectively.

The  Partnership  is paying an asset  management  fee  which is  payable  to the
General  Partner.  Through 1999, the Asset Management Fee is calculated as 1% of
the  Partnership's  tangible asset value.  Tangible asset value is determined by
using the greater of (i) an amount calculated by applying a capitalization  rate
of 9% to the annualized net operating income of each property or (ii) a value of
$10,000 per  apartment  unit for  residential  property and $50 per gross square
foot for commercial property to arrive at the property tangible asset value. The
property  tangible  asset  value is then  added to the book  value of all  other
assets excluding  intangible items. The fee percentage  decreases  subsequent to
1999.  Total  accrued  but  unpaid  asset  management  fees  of  $3,501,711  and
$3,318,406   were   outstanding   at  June  30,  1998  and  December  31,  1997,
respectively.

The Partnership pays a disposition fee to the General Partner equal to 3% of the
gross sales price for brokerage  services  performed in connection with the sale
of the Partnership's properties. The fee is due and payable at the time the sale
closes.  In connection with the sales of Suburban Plaza and Wyoming Mall,  total
accrued but unpaid  disposition  fees of $346,050 were  outstanding  at June 30,
1998 and December 31, 1997. In connection with the sale of Fort Meigs Plaza, the
General Partner waived its right to receive a disposition  fee, which would have
totaled $114,000.

Prior  to the  restructuring  of the  Partnership,  affiliates  of the  Original
General  Partner  advanced  funds to enable the  Partnership to meet its working
capital requirements. These advances were purchased by, and were payable to, the
General Partner. These advances and accrued interest, in the amount of $812,665,
were repaid in full in April 1998.





<PAGE>
Compensation  and  reimbursements  paid to or  accrued  for the  benefit  of the
General Partner and its affiliates are as follows:

                                                              Six Months Ended
                                                                  June 30,
                                                            -------------------
                                                              1998       1997
                                                            --------   --------
Property management fees ..............................     $165,023   $166,284
Charged to interest - affiliates:
   Interest on advances from affiliates ...............       17,684     29,516
   Interest on mortgage notes payable - affiliate .....      119,687     30,442
Charged to general and administrative - affiliates:
   Partnership administration .........................      148,829    126,398
   Asset management fee ...............................      183,305    194,550
                                                             -------    -------
                                                            $634,528   $547,190
                                                             =======    =======

Payable to affiliates at June 30, 1998 and December 31, 1997 consisted primarily
of unpaid asset management fees, property management fees,  disposition fees and
partnership  general and  administrative  expenses  and is due and payable  from
current operations.

The mortgage  notes payable - affiliate  secured by Fort Meigs Plaza were repaid
in full when the property was sold in April 1998. See Note 6.

NOTE  6.
-------

On April 20,  1998,  the  Partnership  sold Fort Meigs  Plaza  Shopping  Center,
located in Perrysburg,  Ohio, to an  unaffiliated  purchaser for a cash purchase
price of  $3,800,000.  Cash  proceeds  from the sale,  after payment of prorated
rents and  property  taxes,  were used to repay the  mortgage  notes  payable to
McNeil Real Estate Fund XX, L.P.  ("Fund XX"), an affiliate.  Cash proceeds,  as
well as the gain on sale, are detailed below.

<TABLE>
<CAPTION>
                                                                      Gain             Cash
                                                                     on Sale         Proceeds
                                                                  ------------     -------------
<S>                                                               <C>              <C>         
Sales price..........................................             $  3,800,000     $  3,800,000

Selling costs .......................................                 (101,635)        (101,635)
Straight-line rents receivable written off...........                  (28,979)
Prepaid leasing commissions written off..............                  (10,048)
Carrying value.......................................               (2,795,988)
                                                                   -----------

Gain on sale of real estate..........................             $    863,350
                                                                   ===========      ------------

Proceeds from sale...................................                                  3,698,365

Prorated rents and property taxes paid at
   closing...........................................                                    (83,012)

Retirement of mortgage notes payable to
   Fund XX and related accrued interest..............                                 (3,615,353)
                                                                                    ------------

Net cash proceeds....................................                              $           -
                                                                                    ============
</TABLE>
<PAGE>

The Partnership  recognized a $190,437  extraordinary  gain on retirement of the
mortgage notes payable to Fund XX, as follows:

First lien mortgage note payable - affiliate.........           $  2,990,694
Second lien mortgage note payable - affiliate........                733,900
Accrued interest payable.............................                 81,196
                                                                 -----------
   Total principal and interest payable to Fund XX...              3,805,790

Cash paid for repayment in full of principal and
   interest payable to Fund XX.......................             (3,615,353)
                                                                 -----------

Extraordinary gain on retirement of mortgage
   notes payable - affiliate.........................           $    190,437
                                                                 ===========

Under the terms of its partnership  agreement,  the Partnership  normally pays a
disposition  fee to the General Partner equal to 3% of the gross sales price for
brokerage  services  performed in connection with the sale of the  Partnership's
properties.  The  fee is due  and  payable  at the  time  the  sale  closes.  In
connection  with the sale of Fort Meigs Plaza,  the General  Partner  waived its
right to receive such fee, which would have totaled $114,000.

NOTE 7.
-------

The mortgage  notes  payable  secured by Wise County Plaza  matured on August 1,
1997 and the Partnership was unable to negotiate a modification and extension of
the loans. On May 29, 1998, Wise County Plaza was foreclosed on by the lender in
full  settlement  of the  mortgage  indebtedness  secured  by the  property.  In
connection  with  this  transaction,   the  Partnership  recognized  a  gain  on
retirement of mortgage note payable as follows:


Estimated fair value of real estate..................           $ 4,535,814

Accounts receivable written off......................               (61,910)
Prepaid expenses written off.........................               (10,855)
Accrued property taxes written off...................                20,335
Deferred rental revenue written off..................                   750
Carrying value.......................................            (4,484,134)
                                                                 ----------

   Gain on disposition...............................           $         -
                                                                 ==========

Amount of mortgage note payable settled..............           $ 5,957,419
Amount of accrued interest payable settled...........               222,172
Escrow deposits applied..............................               (18,062)
Estimated fair value of real estate..................            (4,535,814)
                                                                 ----------

Extraordinary gain on retirement of mortgage
   note payable......................................           $ 1,625,715
                                                                 ==========


<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-------  ---------------------------------------------------------------
         RESULTS OF OPERATIONS
         ---------------------

FINANCIAL CONDITION
-------------------

Fort Meigs Plaza Shopping  Center was sold on April 20, 1998.  Wise County Plaza
Shopping Center was foreclosed on by the lender on May 29, 1998.  There has been
no significant  change in the  operations of the remainder of the  Partnership's
properties since December 31, 1997. The Partnership  reported net income for the
first six months of 1998 of $1,976,339 as compared to a net loss of $548,075 for
the first six months of 1997.  Revenues  increased  to  $3,998,573  in 1998 from
$3,286,862 in 1997.  Expenses were  $3,838,386 in 1998 as compared to $3,834,937
in  1997.  The  Partnership  recognized  $1,816,152  in  extraordinary  gains on
extinguishment  of mortgage notes payable and mortgage notes payable - affiliate
in the first six months of 1998.

Net cash provided by operating  activities was $451,734 for the first six months
of 1998. The Partnership expended $164,987 for capital improvements and $124,182
for regularly  scheduled  principal  payments on its mortgage  notes payable and
mortgage notes payable - affiliate.  The Partnership repaid $812,665 of advances
from affiliates, including accrued interest. The Partnership received $3,698,365
in proceeds  from the sale of Fort Meigs Plaza,  $3,534,157 of which was used to
pay off the principal of its mortgage  notes payable - affiliate  secured by the
property.  Cash and cash  equivalents  decreased  by $485,892  for the first six
months of 1998, leaving a balance of $1,331,693 at June 30, 1998.

The Partnership  has had little ready cash reserves since its inception.  It has
been largely  dependent on  affiliates  to support its  operations.  Although no
additional advances from affiliates were required during the first six months of
1998, at June 30, 1998 the Partnership  owed payables to affiliates for property
management  fees,  Partnership  general  and  administrative   expenses,   asset
management fees and disposition  fees totaling  $5,189,575.  Affiliate  advances
were repaid in full in April 1998.

RESULTS OF OPERATIONS
---------------------

Revenue:

Total revenue increased by $666,631 for the three months and by $711,711 for the
six months ended June 30, 1998 as compared to the same  periods in 1997,  mainly
due to a gain on sale of real estate, as discussed below.

Rental  revenue for the three and six months  ended June 30, 1998  decreased  by
$166,281 and  $119,501,  respectively,  as compared to the same periods in 1997.
Approximately  $236,000 of the decrease was  attributable  to the disposition of
Fort  Meigs  Plaza and Wise  County  Plaza in the second  quarter of 1998.  This
decrease was partially offset by increases of approximately  $51,000 and $34,000
at Evergreen  Square and Governour's  Square  apartments,  respectively.  Rental
revenue at Evergreen  Square  increased due to an increase in occupancy from 82%
at  June  30,  1997  to 91% at  June  30,  1998.  Rental  revenue  increased  at
Governour's Square Apartments due to an increase in rental rates.



<PAGE>

Interest  income  decreased  by $3,629  and  $5,329 for the three and six months
ended June 30,  1998,  respectively,  in relation to the  comparable  periods in
1997,  mainly due to a decline in the amount of cash  available  for  short-term
investment in the second  quarter of 1998.  The  Partnership  held cash and cash
equivalents  of  approximately  $1.3  million at June 30,  1998 as  compared  to
approximately  $1.7 million at June 30, 1997. The decrease was mainly due to the
repayment of $812,665 of advances from affiliates in April 1998.

The  Partnership  recognized a gain on involuntary  conversion of $26,809 in the
second  quarter of 1997  related to  hurricane  damage  suffered at  Governour's
Square  Apartments in 1996. The gain, which  represented the insurance  proceeds
received  in excess of the basis of the  property  damaged,  was  recognized  as
reimbursement  proceeds were received from the insurance  carrier.  No such gain
was recognized in the first six months of 1998.

In the second quarter of 1998, the Partnership recognized a $863,350 gain on the
sale of Fort Meigs Plaza  Shopping  Center.  No such gain was  recognized in the
first half of 1997.

In the  second  quarter  of  1998,  the  Partnership  recognized  $1,816,152  in
extraordinary  gains.  The  Partnership   recognized  a  $190,437  gain  on  the
extinguishment  of the Fort Meigs Plaza  mortgage notes payable - affiliate as a
result of the sale of the property. The Partnership also recognized a $1,625,715
gain on  extinguishment  of the Wise County Plaza  mortgage  notes  payable as a
result of the foreclosure of the property by the lender.

Expenses:

Total expenses decreased by $87,645 for the three months and increased by $3,449
for the six months  ended June 30, 1998 as compared to the same periods in 1997.
There was a decrease  in  interest  expense in the first and second  quarters of
1998,  partially offset by an increase in general and  administrative  expenses,
mainly in the first quarter of 1998, as discussed below.

Interest  expense for the three and six months ended June 30, 1998  decreased by
$115,663 and  $208,689,  respectively,  as compared to the same periods in 1997.
The  decrease  was mainly due to the first lien loan on Fort Meigs  Plaza  being
purchased by an affiliate in December  1997.  Interest on this loan was recorded
as interest  expense for the first  eleven  months of 1997;  it was  recorded as
interest - affiliates in 1998.  Also,  there was a decrease in interest  expense
relating to the Wise County Plaza loans due to the  foreclosure  of the property
by the lender in May 1998.

Interest -  affiliates  decreased  by $18,820 and  increased  by $77,413 for the
quarter and six months  ended June 30,  1998,  respectively,  as compared to the
same periods in the prior year. The overall  increase was due to interest on the
first lien loan  secured by Fort Meigs Plaza being  payable to an  affiliate  in
1998, as discussed  above.  This increase was partially  offset by a decrease in
affiliate  interest due to the April 1, 1998 payoff of the first and second lien
loans secured by Fort Meigs Plaza.

General and administrative  expenses for the three and six months ended June 30,
1998 increased by $122,668 and $181,729,  respectively,  as compared to the same
periods in 1997.  The increase was  primarily  due to costs  incurred in 1998 to
explore alternatives to maximize the value of the Partnership (see Liquidity and
Capital Resources).


<PAGE>

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

At June 30, 1998, the Partnership held cash and cash equivalents of $1,331,693.

Cash of $451,734  was  provided  by  operating  activities  during the first six
months of 1998 as compared to $499,619  provided during the same period in 1997.
There was a decrease  in  interest  paid and an  increase  in  interest  paid to
affiliates  in 1998 due to the first lien loan on Fort Meigs Plaza being held by
an  affiliate  in 1998,  as  previously  discussed.  The overall net decrease in
interest  paid was primarily the result of the sale of Fort Meigs Plaza in April
1998 and the  foreclosure  of Wise County Plaza in May 1998.  In  addition,  the
Partnership  ceased  making  excess cash flow  payments on the Wise County Plaza
loans in 1998, which was recorded as additional interest on the loans.

Cash used for  additions  to real estate  investments  totaled  $164,987 for the
first six months of 1998 as compared to $381,245  for the same period in 1997. A
greater  amount  was  spent in 1997 for  exterior  upgrades  at  Bedford  Green,
Evergreen Square and Governour's  Square  apartments.  In addition,  landscaping
work was performed at  Governour's  Square and the pool at Woodcreek  Apartments
was replastered in 1997.

The Partnership  repaid $812,665 of advances from affiliates,  including accrued
interest.  The Partnership received $3,698,365 in proceeds from the sale of Fort
Meigs  Plaza,  $3,534,157  of  which  was used to pay off the  principal  of its
mortgage notes payable - affiliate secured by the property.

Short-term liquidity

For  the  remainder  of  1998,  present  cash  balances  and  operations  of the
properties  are  expected  to  provide  sufficient  cash  for  normal  operating
expenses,  debt service payments and budgeted capital  improvements.  Fort Meigs
Plaza was sold to a non-affiliate  for $3.8 million in April 1998. There were no
net cash proceeds  arising from the sale as all cash proceeds,  after payment of
selling  costs and  prorations,  were used to pay off the first and second  lien
mortgage  notes secured by the property.  Wise County Plaza was foreclosed on by
the lender in May 1998.

The  Partnership  has no  established  lines of  credit  from  outside  sources.
Although  affiliates of the Partnership  have  previously  funded cash deficits,
there can be no assurance the Partnership will receive  additional funds.  Other
possible actions to resolve cash  deficiencies  include  refinancing,  deferring
major capital or repair  expenditures  on  Partnership  properties  except where
improvements are expected to enhance the  competitiveness  and  marketability of
the properties,  deferring payables to or arranging financing from affiliates or
the ultimate sale of Partnership properties.












<PAGE>
Long-term liquidity

As   previously   announced,    the   Partnership   has   retained   PaineWebber
("PaineWebber"),  Incorporated  as its  exclusive  financial  advisor to explore
alternatives  to  maximize  the  value  of the  Partnership  including,  without
limitation,  a  transaction  in  which  limited  partnership  interests  in  the
Partnership are converted into cash. The Partnership,  through PaineWebber,  has
provided  financial and other information to interested parties and is currently
conducting  discussions  with one such party in an attempt to reach a definitive
agreement  with respect to a sale  transaction.  It is possible that the General
Partner  and its  affiliates  will  receive  non-cash  consideration  for  their
ownership  interests in connection  with any such  transaction.  There can be no
assurance that any such agreement will be reached nor the terms thereof.

Operations of the  Partnership's  properties are expected to provide  sufficient
cash flow for operating expenses, debt service payments and capital improvements
in the foreseeable future.

Excluding  the  gain  on  sale  of  real  estate  and  extraordinary   gains  on
extinguishment of mortgage notes payable and mortgage notes payable - affiliate,
the  Partnership  reported a net loss from  operations  for the six months ended
June 30, 1998. In addition, the Partnership has had to defer payment of payables
to affiliates in order to meet its working capital needs. These conditions raise
substantial  doubt  about  the  Partnership's  ability  to  continue  as a going
concern.  The  financial  statements do not include any  adjustments  that might
result from the outcome of these uncertainties.

Distributions

To maintain adequate cash balances of the Partnership,  distributions to Current
Income Unit holders were suspended in 1989.  There have been no distributions to
Growth/Shelter  Units  holders.   Distributions  to  Unit  holders  will  remain
suspended  for the  foreseeable  future.  The General  Partner will  continue to
monitor  the cash  reserves  and working  capital  needs of the  Partnership  to
determine when cash flows will support distributions to the Unit holders.

Forward-Looking Information

Within this document,  certain  statements are made as to the expected occupancy
trends,  financial  condition,  results  of  operations,  and cash  flows of the
Partnership  for  periods  after  June 30,  1998.  All of these  statements  are
forward-looking  statements  made pursuant to the safe harbor  provisions of the
Private  Securities  Litigation  Reform Act of 1995.  These  statements  are not
historical  and  involve  risks  and  uncertainties.  The  Partnership's  actual
occupancy trends, financial condition, results of operations, and cash flows for
future  periods may differ  materially  due to several  factors.  These  factors
include,  but are not limited to, the  Partnership's  ability to control  costs,
make necessary  capital  improvements,  negotiate  sales or  refinancings of its
properties, and respond to changing economic and competitive factors.


<PAGE>

Other Information:

Management  has begun to review its  information  technology  infrastructure  to
identify any systems that could be affected by the year 2000  problem.  The year
2000 problem is the result of computer  programs  being written using two digits
rather  than  four to  define  the  applicable  year.  Any  programs  that  have
time-sensitive  software may recognize a date using "00" as the year 1900 rather
than  the  year  2000.   This  could   result  in  major   systems   failure  or
miscalculations.  The information  systems used by the Partnership for financial
reporting and  significant  accounting  functions  were made year 2000 compliant
during  recent  systems  conversions.  The  Partnership  is in  the  process  of
evaluating the computer systems at the various properties.  The Partnership also
intends to communicate  with  suppliers,  financial  institutions  and others to
coordinate  year 2000 issues.  Management  believes that the  remediation of any
outstanding  year 2000  conversion  issues  will not have a material  or adverse
effect on the Partnership's operations.




<PAGE>
                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
-------  -----------------

James F.  Schofield,  Gerald C. Gillett,  Donna S. Gillett,  Jeffrey  Homburger,
Elizabeth Jung,  Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P.,
McNeil Investors,  Inc., McNeil Real Estate Management,  Inc., Robert A. McNeil,
Carole J. McNeil,  McNeil Pacific  Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX,  Ltd.,  McNeil Real  Estate  Fund X, Ltd.,  McNeil Real Estate Fund XI,
Ltd.,  McNeil  Real Estate Fund XII,  Ltd.,  McNeil Real Estate Fund XIV,  Ltd.,
McNeil Real Estate Fund XV, Ltd.,  McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P.,  McNeil Real Estate Fund XXII,  L.P.,  McNeil Real Estate
Fund XXIV,  L.P.,  McNeil Real Estate  Fund XXV,  L.P.,  McNeil Real Estate Fund
XXVI, L.P., and McNeil Real Estate Fund XXVII,  L.P., et al. - Superior Court of
the State of California for the County of Los Angeles,  Case No. BC133799 (Class
and Derivative Action Complaint).

The action involves  purported  class and derivative  actions brought by limited
partners of each of the fourteen limited partnerships that were named as nominal
defendants as listed above (the  "Partnerships").  Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management,  Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their  fiduciary  duties and certain  obligations  under the respective  Amended
Partnership  Agreement.  Plaintiffs  allege that  Defendants  have rendered such
Units highly illiquid and  artificially  depressed the prices that are available
for Units on the resale market.  Plaintiffs also allege that Defendants  engaged
in a course of conduct to prevent the  acquisition  of Units by an  affiliate of
Carl  Icahn  by  disseminating  purportedly  false,  misleading  and  inadequate
information.  Plaintiffs  further allege that Defendants  acted to advance their
own personal  interests at the expense of the Partnerships'  public unit holders
by failing to sell Partnership  properties and failing to make  distributions to
unitholders.

On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs  are suing for breach of  fiduciary  duty,  breach of contract and an
accounting,  alleging,  among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive,  that these fees should
be reduced retroactively and that the respective Amended Partnership  Agreements
governing the Partnerships are invalid.

Defendants  filed a demurrer to the  consolidated  and amended  complaint  and a
motion to strike on February 14, 1997,  seeking to dismiss the  consolidated and
amended complaint in all respects.  A hearing on Defendant's demurrer and motion
to strike  was held on May 5,  1997.  The Court  granted  Defendants'  demurrer,
dismissing  the  consolidated  and  amended  complaint  with leave to amend.  On
October  31,  1997,  the  Plaintiffs  filed a second  consolidated  and  amended
complaint.  The case has  been  stayed  pending  settlement  discussions.  While
actively working toward a final resolution, there can be no assurances regarding
settlement.
<PAGE>


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
-------  ---------------------------------

(a)      Exhibits.

         Exhibit
         Number                     Description
         -------                    -----------

         4.                         Amended and  Restated   Limited  Partnership
                                    Agreement     dated    March    26,    1992.
                                    (Incorporated  by  reference  to the Current
                                    Report of the  Registrant  on Form 8-K dated
                                    March 26, 1992, as filed on April 9, 1992).

         11.                        Statement  regarding   computation  of   Net
                                    Income (Loss) per Limited  Partnership Unit:
                                    Net income  (loss) per  limited  partnership
                                    unit is  computed  by  dividing  net  income
                                    (loss)  allocated to the limited partners by
                                    the  weighted   average  number  of  limited
                                    partnership  units  outstanding.   Per  unit
                                    information   has  been  computed  based  on
                                    24,863  and  24,906   Current  Income  Units
                                    outstanding in 1998 and 1997,  respectively,
                                    and 22,085 and 22,180  Growth/Shelter  Units
                                    outstanding in 1998 and 1997, respectively.

         27.                        Financial  Data   Schedule  for  the quarter
                                    ended June 30, 1998.


(b)      Reports on Form 8-K. A Form 8-K with  respect to Item 2 dated April 20,
         1998 was filed on April 29, 1998 regarding the sale of Fort Meigs Plaza
         Shopping  Center.  A Form 8-K with respect to Item 2 dated May 29, 1998
         was filed on June 5, 1998  regarding  the  foreclosure  of Wise  County
         Plaza Shopping Center.




<PAGE>



                        MCNEIL REAL ESTATE FUND XXI, L.P.

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized:



                               McNEIL REAL ESTATE FUND XXI, L.P.

                               By:  McNeil Partners, L.P., General Partner

                                    By: McNeil Investors, Inc., General Partner






August 14, 1998                     By: /s/  Ron K. Taylor
---------------                        -----------------------------------------
Date                                    Ron K. Taylor
                                        President and Director of McNeil 
                                         Investors, Inc.
                                        (Principal Financial Officer)




August 14, 1998                     By: /s/  Carol A. Fahs
---------------                        -----------------------------------------
Date                                    Carol A. Fahs
                                        Vice President of McNeil Investors, Inc.
                                        (Principal Accounting Officer)